Bank apps, low merchant fee may impact e-wallets

MDR rate for merchants was waived for the first two months of demonetisation.MDR rates were capped from January 1 to March 31, 2017 by the RBI. For transactions below Rs 1,000, the cap was at 0.25%, and for transactions of Rs 1,000-2,000 at 0.50%.Rachel Chitra | TNN | January 11, 2017, 18:00 IST

CHENNAI: Merchant discount rate (MDR, the fee charged by banks for card services) will be a bone of contention between banks and e-wallets as competition and costs intensify post-demonetisation.

With banks replicating all that e-wallets offer, the battle appears to be that of David vs Goliath. "A bank's income is not hinged on its payment business. However, for most e-wallets, merchant commission from payments is likely to be their main source of income. With Unified Payments Interface (UPI), banks now offer their own mobile payment options that have inter-operability and ubiquity through exhaustive list of merchant tie-ups. This resurgence of banks' mobile apps combined with a significant drop in MDR is likely to present a challenge to private e-wallets," said Lokvir Kapoor, CEO, Pine Labs.

MDR rate for merchants was waived for the first two months of demonetisation.MDR rates were capped from January 1 to March 31, 2017 by the RBI. For transactions below Rs 1,000, the cap was at 0.25%, and for transactions of Rs 1,000-2,000 at 0.50%.

While these measures were an incentive to go cashless, the cost of this exercise is being borne by banks, which have lost transaction fees and a sizeable chunk of their non-interest income. But for e-wallets, investors are concerned about lower commissions. "Post-demonetisation, it is true that e-wallets have gone on a customer acquisition spree and on-boarded thousands of new customers.But profitability is a question. It is no longer just about valuation," said an investor in an e-wallet.

While merchants normally pass on the costs of MDR or surcharge onto customers, e-wallets like Paytm are not doing so. "We are currently paying the MDR rate to banks on behalf of the merchants. It is an incentive for more merchants to use Paytm and we will be offering this even as we make the transition into a payment bank," said Vijay Sekhar Sharma, CEO, Paytm.

Banks also said that the convenience offered by e-wallets is being superseded by NPCI's initiatives such as UPI, BHIM app, USSD and multiple bank offerings. "Banks have a large, ready customer base and interoperable network, unlike e-wallets," said Deepak Sharma, chief digital officer, Kotak Mahindra Bank. "Ultimately e-wallets have to be funded through bank accounts. Why do two transfers when the banks' own wallets or UPI-enabled mobile apps, can do payments in one click?"